Are Your Clergy Members Maximizing Their Housing Allowance?

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Wednesday, November 4, 2020

Maximizing your housing allowance for clergy is very important but can be confusing for clergy and non-clergy alike. The Housing Allowance for United Methodist clergy is designed as an exclusion from income, not a deduction, as it relates to federal income tax. UMC Support has prepared a handy document titled “Housing Allowance Questions and Answers” that we encourage local churches to read.  

In addition to these helpful questions and answers, there are a few things to remember to make sure clergy maximize their housing allowance as the likely time to make a housing designation is approaching.  

  • First, remember that the housing allowance has no negative impact on the church and does not cost the church anything additional; therefore, it is in a clergyperson’s best interest to maximize the allowance.  
  • What is the maximum amount of a person’s salary that can be designated as a housing allowance?  All of a person’s salary can be designated if that amount is used to cover the lesser of: 

(a) the amount designated as the housing allowance  

(b) the amount of actual housing expenses, or 

(c) the fair rental value of the property (furnished, plus utilities). 

  • Ensure your housing allowance is not limited because the designation is significantly different from your actual housing expenses or the fair rental value of the property, whichever is lesser.   
  • Are you including everything possible in your housing allowance?  The most reasonable household expenses that can be included in the housing allowance are a down payment on a home, mortgage payments (including interest and principal), home equity loan payments (assuming the loan proceeds are used for housing-related expenses), real estate taxes, property insurance, utilities, furnishings and appliances (including repairs), structural repairs, remodeling, yard maintenance and improvements, pest control, snow removal, maintenance items, and trash pickup. 
  • Finally – this is important – the designation of the housing allowance amount has to be made prospectively. The designation has to be made before the benefit can be claimed.  It is common for churches to make the designation in December for the calendar year and then if a pastor is moved they make another designation in the summer before the move.   

Housing Allowances are a complicated subject, but it really is in a clergy’s best interest to make sure they are maximizing this benefit. Make sure your church makes a designation for 2021.

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